In this article, we continue from the Part –I to focus on more types of IRA plans.
Most of us have different expectations from our retirement years but there is one expectation that is common-financial independence. Therefore, it comes as no surprise when every individual invests in a retirement fund conducive to his/her expectations. Many seek comprehensive retirement planning advice from experts before they consider saving. In the United States, many people have Individual retirement arrangement (IRA) that has tax benefits for its holders. The money invested in this plan helps in the reduction of the total tax liability of an individual. IRA was formed by the government in 1974 for safeguard Americans against the disasters of poor pension plans .IRA is of five types namely Roth IRA, Traditional IRA, SEP IRA, SIMPLE IRA and self directed IRA. The section provides retirement planning advice that helps us to understand the different types of IRA.
Types of Individual Retirement Arrangement (IRA) accounts
Roth IRA - In this type of Individual retirement arrangement, the savings are generally not taxed, if certain conditions are fulfilled. The various types of Individual retirement accounts differ in their tax deductions and the contributions that can be made to them. The Roth IRA is different from the others as the individual benefits by getting a tax relief at the time of the retirement. In comparison, other types of IRA’s provide tax relief when an individual is saving for the retirement. Withdrawals can also be made anytime from the Roth IRA account without having to pay any penalty even before one reaches the age for withdrawals of fifty-nine and half years. In other types of IRA, withdrawal before the legal age results in penalties. In this type of IRA, the maximum contribution is of $5000 in a given year. The other factors that influence contributions are whether a person is filing singly or as married and the limits of his/her gross income. In spite of qualifying fo9r a 401K plan, an individual can still quality for the Roth IRA plan.
SEP IRA – In addition to the traditional and Roth IRA’s, there is another type of IRA that allows a small business of a self employed individual to make contributions towards a retirement fund. Contributions made are in the name of the employee and not in the pension fund of the company.
Individual Retirement Arrangement (IRA) –Part II